New hedge funds outperform their longer-established rivals and are no more likely to fail, according to research by a fund of hedge funds manager.

Mayer & Hoffman Capital Advisors, a US firm, said its sample of 167 funds that began operating in 2003 outperformed the MSCI hedge fund index by almost 50% over the 24 months to December 2005, on an equal-weighted basis.

On an asset-weighted basis, the outperformance was 60%, with the funds generating a return of 25.3% on average compared with 15.5% shown by the comparable MSCI hedge fund index.

The research did not address whether larger funds had performed better despite, or because of, their size, or the extent to which the funds had grown because of greater performance. It found 14 of the 167 funds had closed during the two years, all but two of them in the second.

It said the 8.4% failure rate was in line with published rates for the industry, which it said ranged from 3.9% to 11.4% and averaged 8.1%.

Sam Krischner, managing director of Mayer & Hoffman, said: “Five studies in the last five years have concluded that newer hedge funds outperformed their more seasoned peers in their first three years.

“The current study validates this hypothesis. Despite investors’ concerns that newer funds have significantly high attrition rates, our study shows they are in line with the general hedge fund universe.” The study found long/short equity funds, which take positive and negative positions in specific companies’ shares, were the best performers among the newcomers, particularly benefiting from their investments in Europe, Japan and emerging markets.

It said some of these funds were also the beneficiaries of large asset inflows.